The concepts of spot and forward rates are most closely associated with which one of the following explanations of the term structure of interest rates.

Question

Quizplus · Accepted Answer

The Expectations Hypothesis is the theory that the shape of the yield curve depends on investors' expectations of future interest rates. The spot rate is the current interest rate for a specific maturity, while the forward rate is the expected future interest rate for a specific maturity. This theory suggests that the forward rate can be calculated using the spot rate and investors' expectations of future spot rates.

The Concepts of Spot and Forward Rates Are Most Closely